GrowthBusiness.co.uk: Your gateway to entrepreneurial success

Organisations like SwissRe and Eurostar (pictured) have now gone carbon-neutral. Sam Richardson, investment director of the cleantech-focused Sustainable Technology Fund, explains why carbon trading is more than just a fad.

The world is producing more hot air and global warming is, by definition, a global problem. The Kyoto protocol, the international agreement to tackle the issue, has attempted to create a free-market solution with the establishment of the Clean Development Mechanism (CDM), a market for tradeable credits that developed world companies can buy to meet their pollution requirements.

As an emerging commodity market, the CDM is gaining momentum. The trade in carbon credits was worth €40 billion (£32 billion) last year and according to Point Carbon, the specialist research group, it will be worth an estimated €63 billion this year. Other estimates from New Carbon Finance indicate the global trade in carbon emissions could hit US$2 trillion by 2020 which is not far off the present $3 trillion value of global oil markets.

Companies such as reinsurance group SwissRe and Eurostar have fully bought into the concept, with the former having been carbon-neutral since 2003 and the latter since 2007. Nevertheless, scepticism still exists regarding the carbon markets. Much like medieval “indulgences”, offset trading is seen as a rather reactive way to combat the sins of greenhouse gas emissions and has led to accusations of “greenwash”, while the value of the carbon market to small and medium-sized enterprises (SMEs) has been questioned.

Making a real difference
What has changed since the introduction of the CDM is that commodity prices have hit levels never seen before, with global energy costs now higher than those seen at the peak of the OPEC-induced oil crises. Carbon auditing, once seen as a mere marketing tool, is now becoming a way to analyse cost inefficiencies in the service and manufacturing sectors. For example, a supply chain carbon audit performed by The Carbon Trust for Walkers Crisps identified inefficiencies which not only could reduce the company’s carbon footprint but also its production costs.

Some companies are even using these tools to demonstrate their low-carbon credentials to potential investors. Trucost, an environmental analysis company, has developed its own carbon footprint ranking of 185 UK investment funds. This shows some startling results: the estimated carbon footprints of investment portfolios vary up to tenfold.

Undoubtedly, recent economic travails will influence the priority that investors and businesses alike place on the importance of their carbon strategy. While the convergence of carbon and cost efficiencies will continue to sustain this against a backdrop of rising energy prices, the more interesting medium-term developments will be among SMEs and how fully they embrace low-carbon and sustainable strategies. For now, scepticism remains, but as in any emerging market, the risk is not recognising the opportunity early enough to take advantage.